The man who people say invented Bitcoin has a crazy theory that the tulip bubble wasn't actually a bubble

Craig Steven Wright is the most-wanted Australian on the planet right now,
after tax authorities raided his home andtwo reports named himasthe likely inventor of Bitcoin.

Currently, no one knows where he is. Wright has taken his blog, his Linkedin and his YouTube accounts offline.

He told a Bitcoin conference in November that he was about to travel to London or Iceland, two locations where he has previously lived and studied.

In that conference, where he appeared on a panel via Skype, he was asked about the computers he runs. Wright said he was based “in Iceland because of power. It’s much, much cheaper in Iceland to run supercomputers” and that the computer he was building was “No. 15 in the top 500 supercomputers globally.” (The cost of mining Bitcoin is determined largely by the amount of electricity you need to do the computer processing, and that cost is vastly reduced if you don’t need to keep the machines cool — so Bitcoin miners prefer cold climates for their computers.)

The name of his Iceland computer is “Tulip”, Wright said.

When asked what he was doing with Tulip, Wright replied, “we’ve been modelling Bitcoin scalability for a number of years now.” It wasn’t clear what he meant by that, but he seemed to be trying to avoid describing directly what he was actually doing. One theory about Wright is that he is in possession of a Bitcoin trove worth $60 million.

When asked why he named the machine Tulip, he said that the name was a reference to the “tulip mania” bubble that afflicted the Netherlands in 1637. In the tulip bubble, Holland’s tulip bulbs suddenly rose in price as people traded them. Bulbs briefly became more valuable than a year’s income for some workers. Prices collapsed again suddenly, wiping out several fortunes.

The episode is generally regarded as the first classic case of an economic bubble bursting, and is a frequent reference when people talk about what other meaningless economic assets might look like a tulip bubble.

Bitcoin price rises — a tradeable currency that is not backed by any asset whatsoever, except itself — is frequently compared to the tulip bubble.

Dronestagram user took this snap called [email protected]/DronestagramTulip fields in the Netherlands.

Wright told this story:

Most people don’t actually realise that the tulip bubble wasn’t really a bubble. It was actually a reallocation of contracts, it was made from a contract to a “swaption,” by changing the contract to a swaption effectively, and by allowing government officials to get out of a contract they collapsed the price.

Now tulips did actually have a use back then. Tulips kill grass and one of the things they would have done was plant them around castles to keep the grass down and trees down, because they’re toxic. If you had a castle back then you wanted a large area to see things.

There was actually quite a value in tulips because, they sold billions of them around Europe. … The volumes were huge. The audience was huge, it was bigger than coffee is now.

Needless to say, most people understand the tulip bubble as a period in which prices rose because they became unlinked from the underlying value of tulips. It is true, however, that the bubble ended in part when the Dutch government converted futures contracts on tulip contracts into options on tulip futures, which gave buyers an easy way to get out of an agreement to buy and vastly reduced the value of any contract.

But the bottom line for observers is, arguably, this: The guy who invented Bitcoin doesn’t think the tulip bubble was a bubble.

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